Bob Bethea and Jim Coates

Capital of Texas Enrolled Agents

Mortgage (Consensual)

Property Taxes

Mechanics Lien

Judgement

Federal Tax Lien

What is a lien?

Assessment

Failure or Refusal to pay [IRC 6323: If any person liable to pay any tax neglects or

refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.]

A Statutory, silent lien is created

What Creates a Federal Tax Lien?

Recorded Document

Form 668Y(c)

What is a Notice of Federal Tax Lien?

Can’t sell property without addressing the lien

10 Exceptions outlined in IRC 6323 – example: Motor Vehicles (without knowledge), retail sales, casual sales

Can’t borrow on property without subordination

Establishes rights to the equity in property

Adversely affects credit rating

May affect employment

What affect does a NFTL have?

Release

Withdrawal

Discharge

Subordination

Non-attachment

Subrogation

What can be done?

When Paid or statute expires

When Abated

Release

Liens are automatically released if not refiled within the refile period

Automatic Release

Abbreviated reasons: the filing of the notice was premature or otherwise not

in accordance with the Service's administrative procedures

the taxpayer entered into an agreement under IRC §6159

withdrawal of such notice will facilitate the collection of the tax liability

with the consent of the taxpayer or the National Taxpayer Advocate, the withdrawal of such notice would be in the best interest of the taxpayer

Withdrawal

Application is Form 12277, Application for Withdrawal of Filed Notice of Federal Tax Lien

Withdrawal - continued

Discharge

Most common: IRC 6325(b)(2)(A)An amount not less than the value of the government’s interest in the property is paid in partial satisfaction of the liability. To qualify the taxpayer must be divested of all interest in the property after the transaction. IRS Form 669-B

Somewhat common: 6325(b)(2)(B)It is determined that the interest of the United States in the property to be discharged from the lien has no value. To qualify the taxpayer must be divested of all interest in the property after the transaction. IRS Form 669-C

The lien can be discharged from a specific property under one of five IRC Sections--

Discharge - continuedLess common: IRC 6325(b)(1)The remaining property of the taxpayer has a fair market value that is double the sum of the amount of the federal tax lien plus other encumbrances that have priority over the federal tax lien. IRS Form 669-A

Somewhat rare: IRC 6325(b)(3)The proceeds of the sale are held as a fund subject to the liens and claims of the government in the same manner and priority as was the property that was discharged. To qualify the taxpayer must be divested of all interest in the property after the transaction. IRS Form 669-H

Rare: IRC 6325(b)(4)The third-party owner, not the taxpayer, deposits the value of the government’s interest in the property in cash or provides an acceptable bond. Form 669-G

Fair market value must be determined. An appraisal by a qualified disinterested third party along with one other less formal appraisal must be included

Expenses of sale must be reasonable and be paid from the proceeds

HUD-1 and preliminary title report should be included

Relocation expenses can be allowed if hardship. Expenses must be reasonable and subject to limitations. Use IRS Form 12451

Discharge requirements

IRS Publication 783 and Form 14135 (3 pages+)

Discharge Application

Subordination is the process of allowing a junior creditor a position ahead of the federal tax lien with respect to any part of property subject to the federal tax lien. The subordination process is governed by IRC § 6325(d).

Subordination

Subordination - continuedIRC 6325(d)(1)There is paid over to the Service an amount, on a dollar for dollar basis, not less than the amount of the interest of the NFTL or interest to be subordinated. IRS Form 669-D

IRC 6325(d)(2)It is determined that the interest of the United States in any part of the property covered by the NFTL will ultimately be increased by the subordination and collection of the outstanding liability will thereby be facilitated. IRS Form 669-D

IRC 6325(d)(3)It is determined that the United States will be adequately secured after subordination of a lien imposed by IRC § 6324B (Estate). IRS Form 669-F

IRS Publication 785 and Form 14134 (3 pages+)

Subordination Application

IRC § 6325(e) provides for the issuance of a certificate of non-attachment when any person, because of similarity of names or otherwise, is or may be injured by the appearance that a federal tax lien attaches to their property.

Pub 1024 – There is no IRS Form

Non-Attachment

The doctrine of equitable subrogation is expressly recognized by IRC §6323(i)(2), to the extent it exists under state law. Although laws vary from state to state, the following statements can generally be made about subrogation.

It substitutes one person in place of another with respect to a lawful claim or right.

It arises when a junior creditor or lien holder pays off, on a dollar for dollar basis, an encumbrance senior to the NFTL in order to protect its interests. This may include refinanced mortgages by the same or different financial institutions.

There is no certificate that needs to be issued for the subrogation. It is by operation of law and is defined in each state’s law, where applicable. See Local Law Guides on the Chief Counsel web site.

Subordination of the tax lien is not necessary if a creditor meets the requirements of subrogation; however, financial institutions usually want a certificate of subordination in these situations so questions of lien priority are addressed in the public record.

Equitable Subrogation

Alter Ego Alter ego essentially means a "second self." It is a doctrine that allows the law to

disregard an entity’s separate legal identity in order to extend liability and prevent abuse.

Nominee A "nominee" is someone designated to act for another. As used in the federal tax lien context,

a nominee is generally a third-party individual who holds legal title to property of a taxpayer while the taxpayer enjoys full use and benefit of that property.

Transferee Transferee refers specifically when a statutory lien attaches to property and the property has

been transferred by the taxpayer through a gift, bequest, devise, or inheritance before an NFTL could be filed.

Special Circumstances